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A Vegan ETF in the Making?

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The ETF industry has been evolving, courtesy of a smarter approach and adopting of new concepts. Out of the new themes, socially-relevant funds are much in demand (read: Thematic ETFs: Smarter Than Regular Smart Beta ETFs?).

Companies that focus heavily on environmental, social and governance (ESG) practices are being sought by investors, if we go by BlackRock. No wonder, issuers have flocked to this emerging concept and are rolling out products in full swing.

The latest one to join the bandwagon is ETF Series Solutions. The new ETF recently filed for a socially-responsible ETF with a brand-new concept. The name of the fund is the US Vegan Climate ETF (read: Vanguard Jumps on the ESG ETF Bandwagon).

Inside the Proposed Fund

The fund looks to track the performance of the Beyond Advisors US Vegan Climate Index. The underlying index applies a set of rules that look to address the concerns of vegans and environmentalists by dumping companies whose activities are directly related to "animal suffering, destruction of the natural environment, and climate change". The fund charges 60 bps in fees. Th ticker name is yet to be disclosed.

How Does It Fit in a Portfolio?

The ESG investing theme is in vogue now. Investors appear to be bothered about the future of the environment and the effect it might have on their investing portfolio (read: Sustainable ETFs Gather Momentum: What's Behind the Surge).

Apart from the social standpoint, this investing practice offers substantial gains to investors. This is because lesser focus on environmental issues by companies may result in lawsuits, fines and damages, per the source.

As far as vegan diet is concerned, the number of people turned vegan has leaped over the past decade. The trend is here to stay. Per data released by GrubHub, a key takeaway marketplace in the United States, orders for plant-based food have hit a new high. Users picked vegan food 19% more in the first half of 2017 than in the first half of 2016.

To keep pace with growing demand, several restaurants are keeping vegan items and plant-based food alternatives in their menu, per analysts. According to a report by research firm GlobalData, only 1% of U.S. consumers were vegan in 2014 and the number increased to 6% in 2017. So, tapping such a booming trend through stocks and ETFs seems like a prudent approach.

Competition

The fund should not face direct competition as the concept of veganism makes it one of a kind. However, if we broaden the focus and look for ESG ETFs, there are plenty of ETFs to pose competition. The largest ESG ETF is iShares MSCI KLD 400 Social ETF (DSI - Free Report) , which amassed about $1.26 billion, followed by iShares MSCI U.S.A. ESG Select ETF (SUSA - Free Report) with around $797.92 million of assets and iShares MSCI ACWI Low Carbon Target ETF (CRBN - Free Report) with about $542.2 million. Overall, we don’t expect the newly-proposed fund to face any problem in amassing assets.

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